Question

Accounting for Leases

On July 1, 2017, Shroff Company leased a warehouse building under a 10-year lease agreement. The lease requires quarterly lease payments of $4,500. The first lease payment is due on September 30, 2017. The lease was reported as a capital lease using an 8% annual interest rate.

Required
a. Prepare the journal entry to record the initial signing of the lease on July 1, 2017.
(Use a financial calculator or Excel to compute. Round answer to the nearest whole number.)

Date	Description	Debit	Credit
07/01/2017	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer
	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer

b. Prepare the journal entries that would be necessary on September 30 and December 31, 2017.
(Use rounded answer from above for subsequent calculations. Round your answers to the nearest dollar.)

Date	Description	Debit	Credit
09/30/2017	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer
	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer
	To record depreciation expense.
09/30/2017	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer
	Interest expense	Answer	Answer
	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer
	To record lease payment.
12/31/2017	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer
	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer
	To record depreciation expense.
12/31/2017	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer
	Interest expense	Answer	Answer
	AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense	Answer	Answer
	To record lease payment.

c. Post the entries from parts a and b in their appropriate T-accounts.

Cash (A)
07/01/17	Answer	Answer
09/30/17	Answer	Answer
12/31/17	Answer	Answer

Leased Asset (A)
07/01/17	Answer	Answer
09/30/17	Answer	Answer
12/31/17	Answer	Answer

Accumulated Depreciation (XA)
07/01/17	Answer	Answer
09/30/17	Answer	Answer
12/31/17	Answer	Answer

Lease Liability (L)
07/01/17	Answer	Answer
09/30/17	Answer	Answer
12/31/17	Answer	Answer

Interest Expense (E)
07/01/17	Answer	Answer
09/30/17	Answer	Answer
12/31/17	Answer	Answer

Depreciation Expense (E)
07/01/17	Answer	Answer
09/30/17	Answer	Answer
12/31/17	Answer	Answer

d. Prepare a financial statement effects template to show the effects of the entries from parts a and b on the balance sheet and income statement.

Balance Sheet Transaction Cash Asset + Noncash Assets - Contra-Assets = Liabilities + Contrib. Capital + Earned Capital 7/1/17 Signed a capital lease $Answer + $Answer - $Answer = $Answer + $Answer + $Answer 9/30/17 Depreciation on leased asset Answer + Answer - Answer = Answer + Answer + Answer 9/30/17 Made quarterly lease payment Answer + Answer - Answer = Answer + Answer + Answer 12/31/17 Depreciation on leased asset Answer + Answer - Answer = Answer + Answer + Answer 12/31/17 Made quarterly lease payment Answer + Answer - Answer = Answer + Answer + Answer

Income Statement Revenue - Expenses = Net Income $Answer - $Answer = $Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer

Answer 1

Date	General Journal		Debit	Credit
			Amount in $	Amount in $
July 1, 2017	Leased Asset		123100
		Leased laibility		123100
	To record the initial signing of lease
September 30, 2017	Leased liability		4411.76
	Interest Expense		88.24
		Cash		4500.00
	To record the first lease payment
September 30, 2017	Depreciation Expense-Leased asset		4411.76
		Accumulated depreciation on leased asset		4411.76
	To record the depreciation expense on leased asset
December 31, 2017	Leased liability		4325.26
	Interest Expense		174.74
		Cash		4500.00
	To record the first lease payment
December 31, 2017	Depreciation Expense-Leased asset		4325.26
		Accumulated depreciation on leased asset		4325.26
	To record the depreciation expense on leased asset
			Cash
					0	July 1, 2017
					4500	September 30, 2017
					4500	December 31, 2017
			Leased Asset
			July 1, 2017	123100
			Accumulated Depreciation
					0	July 1, 2017
					4411.76	September 30, 2017
					4325.26	December 31, 2017
			Lease Liability
			September 30, 2017	4411.76	123100	July 1, 2017
			December 31, 2017	4325.26
			Interest Expense
			July 1, 207	0
			September 30, 2017	88.24
			December 31, 2017	174.74
			Depreciation Expense
			July 1, 207	0
			September 30, 2017	4411.76
			December 31, 2017	4325.26
		Balance Sheet													Income Statement
		Transaction	Cash Asset	+	NonCash assets	+	Contra Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital		Revenue	-	Expenses	=	Net income
	July 1, 2017	Signed a capital lease	0	+	123100	+	0	=	123100	+	0	+	0		0	-	0	=	0
	September 30, 2017	Depreciation on Leased asset	0	+	0	+	-4411.76	=	0	+	0	+	0		0	-	4411.76	=	-4411.76
	September 30, 2017	Made Qaurterly Lease Payment	4500	+	0	+	0	=	4411.76	+	0	+	0		0	-	88.24	=	-88.24
	December 31, 2017	Depreciation on Leased asset	0	+	0	+	-4325.26	=	0	+	0	+	0		0	-	4325.26	=	-4325.26
	December 31, 2017	Made Qaurterly Lease Payment	4500	+	0	+	0	=	-4325.26	+	0	+	0		0	-	174.74	=	-174.74